Wednesday, June 13, 2012

America, Land of the Nerds!

I have a new article over at the Atlantic, co-written with Adam Ozimek of Modeled Behavior. It's all about high-skilled immigration (or "HSI", as we like to call it); basically, we need lots lots lots more of it.

This has been a big deal in the news lately, with Fareed Zakaria doing a whole show about it, and lots of think tanks producing reports like this one. Adam and I thought we had some new thoughts to add to the mix, and we wanted to re-frame the issue as well. In particular, we wanted A) to depict high-skilled immigration as one of America's key advantages throughout history, and B) to point out how high-skilled immigrants help the situation of working-class Americans (and hence, liberals should be rushing to admit more HSI).

Here's the patriotic bit:

From the very beginning, the United States has enjoyed a unique advantage held by almost no other country on the planet: the ability to attract and retain a huge number of the world's best and brightest. Before independence, for example, America was the beneficiary of perhaps the most elite immigrant group in history. Millions of Scots, who constituted much of the intellectual and technological elite of the British Empire, left Great Britain to seek religious freedom and better economic opportunities in the 13 Colonies. Many of the Founding Fathers, including Jefferson and Hamilton, were partly or wholly descended from that Scottish wave, as were many of America's greatest early inventors, such as Thomas Edison.

Other bursts of "HSI" have proven no less of a windfall. Two waves of Jewish immigrants, one in the early 1900s and another fleeing the Nazis, yielded a multitude of scientists and entrepreneurs. In the late 20th Century, a wave of immigration from Taiwan did the same, giving us (for example) the man who revolutionized AIDS treatment (David Ho), as well as the founders of YouTube, Zappos, Yahoo, and Nvidia. In fact, immigrants or the children of immigrants have founded or co-founded nearly every legendary American technology company, including Google, Intel, Facebook, and of course Apple (you knew that Steve Jobs' father was named Abdulfattah Jandali, right?)...

Our most enduring strength - the thing that sets us apart and ahead - has always been that we are the country where the world's best want to live. In return for the chance to live here, immigrants have time and again helped our nation to maintain its pole position among the nations of the Earth.

And here's the part about the working class:

[T]here is an economic benefit from HSI that should be particularly enticing to liberals: High-skilled immigration works against inequality.

Nowadays, the talk is all about "the 1 percent," top executives, and the finance industry. But equally important is the divergence of America's middle class that occurred in the 1980s. As returns to education skyrocketed, an educated upper middle class pulled away from a medium-skilled lower middle class. The disparity stopped increasing after the 80s, but it has never gone away.

HSI will fight this trend. Boosting the supply of high-skilled workers makes low- and mid-skilled workers proportionately more scarce, increasing their relative incomes. Economist Enrico Moretti finds that earnings of a high school graduate increase 7% for every 10% increase in the percent of people in a city that are college graduates. While having more high-skilled workers around tends to raise everyone's salaries, Moretti's research shows that low-skilled workers benefit four to five times more than college graduates. Even as liberals work to find a way to counteract the problem of the 1 percent, they should view HSI as a step toward turning America back into a true middle-class society.

We also try to name-and-shame Senator Chuck Grassley (R-IA) as one of the people doing the most to hold back a needed reform of HSI policy.

72 comments:

I don't know... replace "labor" with "capital goods" in these sorts of advocacy pieces and you start to see how weak the case is.

We do need more liberalized immigration in this country, but we don't need to use immigration policy as a labor policy. The market failures associated with science and engineering are in the final product markets, not in the factor markets (i.e. - the market for HSIs). It seems to me the case for targeted intervention there is quite weak.

I don't know... replace "labor" with "capital goods" in these sorts of advocacy pieces and you start to see how weak the case is.

Nope. Capital goods can be produced by firms. Also they depreciate.

The market failures associated with science and engineering are in the final product markets, not in the factor markets (i.e. - the market for HSIs). It seems to me the case for targeted intervention there is quite weak.

High skilled workers can be produced by firms and their skills depreciate... I'm not sure I get that argument.

If you think of science and engineering output specifically (this is an area that I personally work on - the S&E labor market), we know about lots of market failures around basic research, positive externalities of R&D, very long time horizons for benefits of S&E work, lots of uncertainty about these investments, etc. Large fixed costs. And problems associated with information goods that may limit production. There are plenty of reasons to think there are issues with the market for scientific output that justify public investment.

Study after study going back to Blank and Stigler in the fifties have shown that there's no obvious market failure associated with the S&E labor market (and I'm assuming this holds true for derived demand for other factors as well). Can you think of what problems there would be in that labor market? Maybe credit constraints that prevent supply from coming online, but then we have a lot of public policies to address that particular problem. I just don't see any of the problems on the labor market side of S&E markets. Indeed the problem we do see cropping up (in life sciences, for example) is gluts.

Its not just life sciences with gluts. I went through a physics phd program, and know dozens of physics and chemistry phds. It seems to be common/folk knowledge in those fields that postdoc conditions are getting worse, time spent in postdocs is increasing, etc. Gluts seem like a common problem across scientific labor markets.

In general, I'm a bit skeptical of the supply side arguments for skilled immigration because in fields I'm familiar with it hasn't worked as promised, its just increased the number of people chasing the same jobs.

Its possible info-tech is more dynamic (you can build a product with just a computer, and research is more applied), but I remain skeptical.

Now, for reasons of basic fairness I'm for more open immigration across the board, but I don't think it will be any kind of panacea. Science already burns human capital. We already have lots of frustrated phds in awful labor markets- we need reforms to figure out ways to use them.

Study after study going back to Blank and Stigler in the fifties have shown that there's no obvious market failure associated with the S&E labor market

Our article is not about market failures, it's about the mobility of labor across national boundaries. Restrictions on movement of labor do not constitute a market failure, but they are still often non-optimal economic policy.

In general, I'm a bit skeptical of the supply side arguments for skilled immigration because in fields I'm familiar with it hasn't worked as promised, its just increased the number of people chasing the same jobs.

That's because you're just thinking of "jobs" as "academic research jobs". Most high-skilled jobs are in the private sector. Those are not dependent on government funding. Yes, we should increase government funding for research, but even if we were not to do that, HSI would be good because of the private sector.

Its not true only of academic jobs- the reason the academic market is so crowded is that there isn't an outlet into the private sector.

My bio and chemist phd friends tell me that the reason they are still in 40k a year postdocs 5+ years post-phd is that they can't find work in the private sector where they get to do any kind of science.

My bio and chemist phd friends tell me that the reason they are still in 40k a year postdocs 5+ years post-phd is that they can't find work in the private sector where they get to do any kind of science.

Sure. You can't get a job in the private sector doing theoretical physics, for example. But that doesn't change the argument at all...

re: "That's because you're just thinking of "jobs" as "academic research jobs". Most high-skilled jobs are in the private sector. Those are not dependent on government funding. Yes, we should increase government funding for research, but even if we were not to do that, HSI would be good because of the private sector."

No Noah - this is not just true of academic posts. This isn't some wacky thing he's coming up with. This is pretty much the consensus opinion among labor economists that study the S&E labor market - Richard Freeman, Sherwin Rosen, Paula Stephan.

One of the reasons I find this area so fascinating and continue to work in it myself is because it's one of these bandwagon policy issues. Who wouldn't like just making more scientist?!?!

The only arguments here that really make sense are the arguments to liberalize immigration generally. I don't see what's so great about targeting one class of workers. I'm having a lot of work done on my new house right now. As far as I'm concerned the more talented labor here in the U.S. to do that work the better. Who can deny that people who know how to replace roofs cut tree limbs make our lives better?? Why don't we make a fast track for immigrants who will come here and do that work? It's human capital - people build it on the job (I think it's wrong to say that human capital appreciates as you did above... the point is that you continue to build it on the job). What could be wrong with that solution! It helps me and nobody would deny that these skills help society!

Think about why that doesn't make sense - that's the source of our frustrations with this perspective.

At least with low skill immigrants the skills are more generalizable and so substitution can avoid some of the gluts you get with these highly specialized skills that high skill workers have.

Yo, Danny Boy. So, how about my argument that it's a lot easier to keep out high-skilled immigrants than low-skilled ones, and hence our immigration policy is biased against high-skilled immigrants, leading to increased income inequality?

Also, Danny Boy, is your argument not simply a case of "I agree with your proposed policy, but here's this other policy that would also be good in addition to what you propose, so I'm going to argue argue argue with your proposal, basically because my underwear is too tight"?? Be honest...

I skimmed that really fast, but how about just more immigration, period? You never know who is going to turn into a highly productive person.

Obviously, it's an easier sell politically to talk about only letting in the Einsteins of the world, but the if we're only letting in highly skilled immigrants, the fellow in your picture would have stayed in Scotland.

the more engineers we permit to enter the US, the less incentive there is for current US citizens (you know, those people who fought our wars, paid our taxes, gave you your freedom and opportunity, those people who have been screwed to the wall by other wacky economic ideas like free trade and deregulation) to become engineers.

It would be a sounder policy to adopt the Swiss model: free education for all, through your Ph.d., if you can do the work.

There really isn't one. There is no reason to believe that having more highly skilled people around reduces incentives to become highly skilled. Indeed, it may increase opportunities for natives via synergy and innovation.

Well, first of all, the issue may not be a very big one, because capital is very mobile. Intel can hire Indian engineers in India, or it can hire them in the U.S. Either way, native-born American engineers are competing against the exact same Indian engineers. But when the Indian engineers come to America, A) their wages go up, making it easier for Americans to compete with them without cutting their wages, B) making them spend their money domestically instead of in India, thus boosting local economies, and B) increasing the "clustering effect" that keeps tech companies here in the U.S.

So in fact, the incentives may increase for Americans to go into engineering when Indian engineers move to America. See what I'm saying?

1) Adam, last I looked or read (e.g., Buffett on invest only in businesses surround by moats) one doesn't enter a business with smart competitors. I practice law, the most competitive business in the United States. It is of absolutely no help to existing firms or lawyers when new lawyers enter the market. What you are saying---it would help lawyers if we had smart bankers of all kinds---admits my point. People in the US won't become engineers, if they face competition.

2) If capital is mobile, the solution is to make capital less mobile.

3) Last, you mention a real problem: clustering. I assume you would agree that it is not in the best interests of the US to permit clusters to develop in China, India, or elsewhere, for such will only lead to further exit of US firms.

Well, first of all, how would you do that? I want you to sit down and think of a policy or set of policies that would make capital less mobile. And when you think you've thought of one, I want you to imagine me saying "Wait, that won't work...", and then I want you to think very hard about why it won't actually work.

And if somehow you are a lot smarter than me and figure out a way that capital could be made less mobile, then, and only then, I want you to explain to me why doing so would not completely screw our economy and cause Americans' wages to plummet.

Last, you mention a real problem: clustering. I assume you would agree that it is not in the best interests of the US to permit clusters to develop in China, India, or elsewhere, for such will only lead to further exit of US firms.

There is no practical way to prevent that. The only good policy is to develop our own clusters and make these the best. And the way to do that is people, people, people.

Of course there is--Hamilton and Washington set up a mercantilist system that ran well for decades.

Since man built the Pyramids, nothing has been beyond his ability, should he choose to apply himself.

There two ways to prevent capital from being mobile. First, tax it if it leaves. We just collected 700 millions from a bank for violating orders re: doing business with Iran. The only way capital can leave is through a bank.

Second, tax it, if it comes back, in the form of tariffs on imports and, my favorite, confiscation of any product not made in accord with all our laws (labor, environmental, etc.).

Just as California regulates auto emissions by setting standards, we could simply require all imports to be made in accord with all our laws.

As for screwing our economy and causing Americans' wages to plummet, that is what Globalization has done.

Did the Moretti study talk about a higher percentage of the current residents having a college degree - ie, no increase in the amount of people, but more college grads comparable to other areas - or was it talking about areas that had more grads move in?

In the first case, its understandable that wages for the other workers would go up. In the second case, you potentially have people with masters degrees taking jobs at mcdonalds.

This is the same dynamic with wage inflation - when unemployment is low (low supply of excess workers), wages go up. Have half another country move in, wages go down. Have no one move in but a more educated/productive workforce, wages are higher.

" Nowadays, the talk is all about "the 1 percent," top executives, and the finance industry. But equally important is the divergence of America's middle class that occurred in the 1980s. As returns to education skyrocketed, an educated upper middle class pulled away from a medium-skilled lower middle class. The disparity stopped increasing after the 80s, but it has never gone away. "

Please note that the 1% started pulling away from the rest, and the 0.1% started pulling away from the rest of the 1%. You do have a bit of problem with causality, don't you?

Barry: You're absolutely right. Most of the runup in inequality since 2000 has had nothing to do with education, and involves the explosion of the upper tail of the income distribution. So that's why in our article we wrote "Nowadays the focus is on the 1%", etc.

BUT, the rise in inequality in the 1980s was much more broad-based, and a lot of that was about education (and about the decline of unions). And that never went away.

The dynamic by which high wages CORRELATE with wage gains for lower- and mid-skilled workers higher is this: in those areas, the cost of living is increased by the purchasing power of higher skilled (higher productivity and higher wages) workers. Therefore, the supply of workers who will work for peanuts is diminished because they literally cannot survive at such a low wage. The supply curve is shifted so that equilibrium is a higher wage.

This is where you have everything bass-ackwards (and you miss the real feature of HSI): increasing the supply of labor will reduce the price of labor - again, supply and demand. With more HSI competing for the same jobs, some will get bumped to middle-wage jobs, and some of those people will get bumped to low-wage jobs - ie, masters degrees in fast food restaurants. This does not help the wages of the low-skilled, and i'm not sure why you and the other economists are mistaking correlation with causation. Now, the actual benefit, which you seem to be missing, is the fact that when the wages of high-skilled workers go down because of more competition, the price of their services will go down, allowing middle and low skilled workers to purchase said services - healthcare, legal work, technology, etc - at a lower price. Also, the cost of living will go down because of less demand for expensive housing, etc. This is where the benefit is for the middle and lower skilled workers from HSI. Not "higher wages."

So if BWM doubles the amount of cars for sale here, and the price drops accordingly, that's going to increase the demand for cheap chevy's? Really?

Labor is different how?

Again, i think its great that people will be able to afford the output of lower paid high skilled workers, but i still can't understand the mechanism by which low wage workers will see increases in wages due to more HSI competing for the same jobs. Increasing the supply doesn't necessarily change the demand curve - wages could just do down, and the leftover high skilled workers can take the jobs of middle and lower skilled workers. Look at the oversupply of labor right now, and wages. Look at the oversupply of middle and high skilled workers and what jobs they end up in. With the increased supply of both high and middle skilled labor, we should expect to see wages of low skilled workers increasing right now. I don't see it.

Like i said, i'm not against this. I think we should have more HSI. But for the actual benefits of HSI, not a correlation between highly productive places and higher wages, none of which has to do with HSI.

Also, "jobs" is not a fixed set of things that doesn't change if the number of people in the system changes.

But take a simple stylized example. An engineer from India gets a job in Houston. He, his wife and their two kids are coming to America! They need a house. They need furniture. They need at least one car. They need food and clothing.

All of that is stuff they are going to use his new salary to buy in and around Houston. That's new demand. That means some tiny fraction of new jobs in housing construction, housing design, housing inspection, furniture production, furniture design, auto manufacturing, auto design, DMV, food production, food retail, clothing retail, clothing design. That's a nice mix of low skill and high skill jobs.

Now you might think that the same demand would be there had the job gone to someone already here, but you'd be at least partially wrong. The person already here is already consuming at least some, if not all, of that basic stuff.

So the new HSI brings new demand with him, as csning said.

But read your second to last sentence of the third paragraph again. You switched from "oversupply" to "increased supply." These are not the same things.

In fact, immigrants have founded or co-founded nearly every legendary American technology company, including Google, Intel, Facebook, and of course Apple (you knew that Steve Jobs' father was named Abdulfattah Jandali, right?)...

All three founders of Apple (Steve Jobs, Steve Wozniak, and Ronald Wayne) were born in America. Being the son of an immigrant doesn't make you an immigrant.

Your statement was that Apple was co-founded by immigrants. That is not true. If you had said it was co-founded by immigrants or sons of immigrants, that would of been true. But you didn't say that. Didn't have the same punch, I guess.

In the Atlantic article you write "Salaries for software engineers have doubled, signaling high demand." The BLS has computer programmers, applications having a median salary of $70,210 in 2001 (inflation adjusted to 2009 $85,244) and a median salary 0f $87,900 in 2009, a 3% increase. What kind of software engineer has seen a doubling of salary and over what period?

Noah, "Salaries for software engineers have doubled, signaling high demand. " is not "salaries for some software engineers".

And not specifying the time period? So now 'high demand' means salaries doubling over 30 years?

And then citing 'dougbrock.com' and the Wall St Journal? Which article itself plays games - some *unspecified subgroup* has seen it's salaries double. What's a 'high-end data/base engineer ', as opposed to a DBA or database programmer?

(note: I know somebody who's an Oracle/MySQL DBA/programmer; I'll apologize if she believes you about salaries doubling in the past two years).

Oh - and it's from an employer's viewpoint, lamenting that they just Can't Get Good Help. Now, if it were from a software engineers' convention, where everybody had that late 90's feeling, I'd believe it.

Noah, *you* are the one who made these claims - go read your Atlantic article if you're unclear (there's a link up at the top). At this point, you've made a claim, backed down, and are now claiming a ridiculous time period.

I did not back down at all, you silly person. In no way did I even slightly back down. If I backed down, then you admitted that your entire philosophy rested upon foundations of sand, vowed to reform, stripped to a loincloth, took a vow of silence, and moved to a Buddhist monastery.

You claimed, based on talking to some friend of yours, that a source I found was unreliable. So I say: Go find your own source. If you can't come back with data to back yourself up, the Buddhist monastery awaits.

Clearly for the US high skilled immigrants are like great deal of free money. They make our country much more wealthy and strong. They really add to our national intelligence and character. Canada recognizes this and lets in as many as want to come.

The people complaining about lost jobs or lower wages should google the lump of labor argument, which is very true over the long run. I wish I had time to really explain this.

But an issue is, as great as this is for the US, does it hurt countries like India when some of their smartest and hardest working people come here. Surprisingly, it may not. It may actually help them: From The Economist, May, 2011:

This “brain drain” has long bothered policymakers in poor countries. They fear that it hurts their economies, depriving them of much-needed skilled workers who could have taught at their universities, worked in their hospitals and come up with clever new products for their factories to make.

Many now take issue with this view (see article). Several economists reckon that the brain-drain hypothesis fails to account for the effects of remittances, for the beneficial effects of returning migrants, and for the possibility that being able to migrate to greener pastures induces people to get more education. Some argue that once these factors are taken into account, an exodus of highly skilled people could turn out to be a net benefit to the countries they leave. Recent studies of migration from countries as far apart as Ghana, Fiji, India and Romania have found support for this “brain gain” idea.

At: http://www.economist.com/node/18741763

Globally, it appears to be a huge net gain, having these people's skills and abilities much more fully utilized.

I am a so called 'HSI' myself, I came to the US on a student visa and continued on an H1b and now in the infinite queue for a Green Card. To put it plainly, the current immigration system is completely fubar in the following ways:

1. The immigrant is completely at the mercy of his employer to be in a valid visa status. He/she cant change jobs easily or start something of his/her own.2. The wait times for immigrant visas vary by nationality. So a person from a tiny country (like many in Europe) gets a resident visa in a few months, while a similarly qualified person from India and China has to wait for years. My personal wait time in interminable queues has stretched on to 6 years now, and no end in sight.3. Spouses of HSI cant work, not even volunteer work if that work is usually done by someone receiving some compensation.

Chuck Grassely and racist organizations like V.Dare and numbers USA have made any reform, even simple procedural matters impossible and an uphill battle. Even simple matters of fairness, of treating every HSI the same regardless of their country of origin, have been blocked by Grasseley using holds.

I have been living in the US for close to 9 years now. If a young university graduate were to ask me today, whether to immigrate to the US, I would be very hesitant in recommending this course of action to him/her. They would not be able to settle down, as in get a permanent resident visa, for a decade or more! If they lose their jobs, they are immediately out of visa status and have to leave in 15 days! Some welcome mat this is..

It is interesting that you choose to head this post with a picture of Andrew Carnegie. Leaving to one side the opinions of certain former residents of Johnstown and Homestead about his legacy, Andrew Carnegie was not a High Skilled Immigrant: he immigrated as a child (13) and started work as a 'bobbin boy'.

Also, please note that Human capital can indded depreciate, in many ways. Repeated use is in fact one of them.

If you had a job working with certain software, you might find after several years that your skills working with other software have depreciated. In the meantime, you might also find that your skills with that certain software are no longer as valuable, due to obsolescence (IOW, they'd depreciated).

You state that "Firms can and do train/educate people." Right on. This used to be extremely common, and is now rare. But there are indeed tons of people available locally to hire that are raw material for firms to "create an intellectually gifted individual" with.

A programmer co-worker, in his early 60s, who graduated as an engineer says he went to a class reunion and of all the grads only he is working in any kind of technical field any more. The rest are doing things like running garages.

Noah seems out of touch with the real job market for able individuals, especially as they get older.

My bio and chemist phd friends tell me that the reason they are still in 40k a year postdocs 5+ years post-phd is that they can't find work in the private sector where they get to do any kind of science."

Noah: "Sure. You can't get a job in the private sector doing theoretical physics, for example. But that doesn't change the argument at all..."

Strawman (actually, BS). It's not just Ph.D.'s in [insert obscure area here]. Maybe you should, you know - talk to some. Ph.D.'s in the allegedly hot 'STEM' sector.

First, your argument was a strawman, and second, you're the first person I've ever heard to say that, in person or on the internet.

And please note that 'Ever single STEM PhD I know has gotten a job, and 100% of those jobs have been some kind of technical job. ' could well mean 'spent seven years getting a Ph.D. in X, and am now working as an entry-level programmer'.

'(Reuters) - There is a little evidence the United States has a major skills shortage that is keeping unemployment elevated, according to a study from the Chicago Federal Reserve Bank, which also found employers are reluctant to hire.'

I really don't think 'nuclear weapons... made the United States the world's first true superpower.' At all, really. This opinion I don't think is very common, so I was a bit taken aback when it was stated in passing. Maybe I am missing something, though?